Question

On January 1,2019 , Portly Corporation acquired equipment for $76,000. The estimated life of the equipment is 5 years or 24,000 hours. The estimated residual value is $4,000. What is the balance in Accumulated Depreciation on December 31, 2019, if Portly Corporation uses the diminishing balance depreciation method at 2 times the straight-line rate?

Select one:
a. $30,400
b. $15,200
c. $14,400
d. $28,800

Answer 1

Using the diminishing balance method at twice the straight-line rate, the Accumulated Depreciation for the first year on equipment would be $28,800 based on a depreciable base of $72,000 and a 40% depreciation rate.

Step-by-step explanation:

To calculate the balance in Accumulated Depreciation on December 31, 2019, using the diminishing balance method at twice the straight-line rate, we start by calculating the straight-line depreciation rate. Since the estimated life of the equipment is 5 years, the straight-line depreciation rate is 1/5, or 20%. The diminishing balance method at twice the straight-line rate would therefore be 40% per year. The cost of the equipment is $76,000 and the estimated residual value is $4,000, which makes the depreciable base $72,000 ($76,000 - $4,000). Applying the 40% rate to the depreciable base, we get a depreciation expense for the first year of $28,800 (40% of $72,000). Hence, the balance in Accumulated Depreciation on December 31, 2019, would be $28,800. This corresponds to option d.